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Tony Stalkfleet receives free help for his tax returns at the Goodwill Corporate Office Saturday in Medford. - Jamie Lusch

Tax filers miss out on a freebie

A federal effort to stimulate the economy by putting extra money into the pockets of the poor could be partially undermined by fees paid for instant tax refunds and the costs of having taxes professionally prepared.

As many as 21 percent of residents in some areas of Jackson County who qualify for the earned-income tax credit are seeking refund loans when they get their taxes professionally prepared, according to an analysis released last week by the Oregon Center for Public Policy.

"They are essentially borrowing against their own tax refund money," said Joy Margheim, policy analyst for the center, which prepares research on policy and budget issues.

Margheim's organization, the IRS and other groups are urging low-income families to take advantage of free tax-preparation centers while avoiding loans based on returns, saving possibly hundreds of dollars in the process.

"Refunded tax dollars that could help low-income families make ends meet and boost local economies are instead ending up in the pockets of tax-preparation companies," stated Michael Phillips, deputy inspector general for audit with the U.S. Treasury Department, following an extensive analysis of the refund loan situation in August 2008.

The average fee paid to have returns professionally prepared for tax refunds of less than $2,000 was $183, compared to $338 for those with tax refunds of more than $5,000, according to the analysis.

The survey found that five to 25 percent of the earned-income tax credit was spent on tax preparation and for the loan, depending on the company.

The majority of those surveyed would have qualified for free tax assistance offered by the IRS, which is attempting to get refunds out quicker this year.

In addition, other volunteer programs are available that could have prepared the tax returns free of charge, according to Phillips' report.

An analysis released by the Oregon Center for Public Policy found that anywhere from 14 to 21 percent of Jackson County residents who received earned-income tax credits also received refund loans. The analysis breaks down the percentages by House and Senate districts.

For instance, 21 percent of people who qualified for the earned-income tax credit in Rep. Sal Esquivel's Medford district received the instant loans, along with 14 percent of low-income filers in Rep. Peter Buckley's Ashland district.

Most of the refund loans generated in the state are going to low-income families, according to the analysis.

Some legislators in the northern part of the state have proposed House Bill 3163, which would give more consumer protections for taxpayers and provide greater disclosure about fees in processing these loans.

Annette Holman, manager of the Liberty Tax Service in the Medford Center, agrees that people would be better off not seeking the loans.

"They should wait for their money to come," she said. "But we're not in their shoes. Our lights are not being turned off, the phone bill isn't due and the cupboards aren't bare."

She said her company does not make a profit off these loans because of the extra paperwork. She said the fee that covers the expenses for the loan service typically runs $7 to $100 depending on the size of the refund.

But, Holman says, "We tell our customers we can save you some money if you can wait the 15 days."

Holman said she has seen many families in need of extra cash this tax season, given the current state of the economy.

In the past, she said, she tried to discourage people from getting the loans, but understands that local residents are enduring hard times.

"We're not trying to be judgmental," she said.

She said the earned-income tax credit often results in a good-sized tax return. For example, a couple earning $10,000 a year with two children would get an earned income credit of $4,010, she said. With some additional tax credits, the family could get about $5,000 back, she said. The fee to prepare the return varies from $125 to $225 depending on how many forms are involved. There is an extra charge if the customer requests the refund loan.

Because of changes in the tax law, a couple with three children who earn $8,000 a year could end up receiving $6,000 in taxes back, Holman said.

The IRS is working on tax-preparation programs that could issue refunds even quicker, which would prevent the need for loans, she said.

Bob Barbee, an AARP volunteer tax preparer, said he understands some people just feel more comfortable getting their returns completed at a professional tax-preparation service.

But, he said, "You should get the same refund no matter where you go."

The Medford resident has been preparing tax returns for 11 years at the Medford Senior Center. "The only thing I tell people is that you have to call the bank to see if the money is deposited," he said.

He said that 90 percent of the returns brought to the senior center have been processed, but the remainder had a lot of deductions, such as rental properties, and are a bit too complicated for them to handle. So far, 160 to 170 returns have been processed, each one taking about 15 to 30 minutes, he said.

Because of improvements at the IRS, Barbee said, refunds of those who file electronically can appear in a taxpayer's account in as few as 10 business days.

"If you had the return filed electronically on a Monday, you should have the money in your account typically the following Friday," he said.

John Stout, a spokesman for the IRS, said the agency wouldn't comment specifically on the merits of the refund loans.

"What the IRS does want to get out to our customers is if they file electronically, we will rapidly get out their return," he said.

By rapid, the IRS means it could take 10 to 14 days if the refund is electronically deposited.

But Stout said some taxpayers might need to receive their returns more quickly than the IRS can accommodate.

"We do understand that there are customers out there that need to get their money fast," he said.

Reach reporter Damian Mann at 776-4476 or dmann@mailtribune.com.

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